Those who lead their lives on excessive debts would be better able to tell their experience of regret. A debt is like a disease, if not controlled initially spreads very fast, and before you even realize it, destroys you completely.

Why then people still borrow money and fall on debts? The answer lies with the borrower. It’s the desire to satisfy their needs, or a desire to satisfy their wants. In either case, you become a borrower, but if you borrow to satisfy your wants, then you had perhaps, invited trouble.

It’s because of the nature of debts to destroy you completely; you are advised to stay away from debts. Still the world runs on debt, every big business establishment thrive on debts, whether it’s a private industry, or a fortune 500 company, all at some point of time had to borrow money from financial institutions. Inspite of all that you should always look to avoid debts through deft financial planning.

Here are few ways on how to avoid debt.

•    If you lack control over your money, then you must start by writing every expense that you incur on a daily basis. It helps you to know the areas of your spending and also helps you to eradicate the unnecessary expense.
•    Try and purchase your necessary household items, at the start of the month, or as soon as you receive your salary, in case if you are a salaried person. You can spend the left amount on other unnecessary items.

Learn the art of financial planning and you would keep yourself free from debt.

When a person borrows money from a lender for a specific period of time and returns it with interest, it is called debt. To manage debt one needs to do proper financial planning. Making the most of your money, deciding upon the debt repayment time, the amount of interest to be paid and the list of attachments of property and other papers required during the agreement is what one means by proper financial planning. Some more tips to manage your debts include:

1. A person should not take debts more than what he needs. Getting larger debt means repaying more money with a greater interest, which is pointless.

2. Debt counseling is an important step which one can follow to aid his financial planning. The debt counselors can help a person decide on the amount that he should take and the factors he should notice in the debt solutions plans.

3. To make most of the debts one must carefully utilize his debt in places that will earn him more profits. This way he can effectively lessen his debt.

4. One vital point which must be kept in mind during financial planning is that if someone’s money is already engaged, he should not spend more money in that field.

5. Nowadays, debt elimination plans are easily available online. Here, various debt counselors suggest various ways to make the most of the debts that have been taken by someone.

6. Certain debt relief is often offered by the government. It is advisable that a person keeps an eye on them and takes their help to become debt free.

Therefore, the above mentioned six vital points about financial planning will not only keep a person away from heavy debts, but will also help him get out of other crisis.

Bankruptcy is a legal process petitioned either by the creditors (involuntary) or by debtor (voluntary) when the debtor is not able to pay his debts. In this case the court gives away the debtors property to creditors to pay compensation for the debts. Bankruptcy often happens due to poor financial planning.

Earlier a number of companies went bankrupt every day which drastically affected the economy. When a company failed to pay its debts and showed that their accounts were zero, it is considered bankrupt. This meant that the lenders get nothing in return. According to the previous laws, if the company is registered as a corporation then the lenders will only get the cost of all possessions of the company and not the private belonging of the chief of the firm.

The situation got critical as the businessmen started to use bankruptcy as a tool to not pay the lenders. They misused the exclusive rights and took advantage of the rights offered by the bankruptcy law. Thousands of such cases were filed and therefore, there was the change in the laws. The new bankruptcy law confirmed that during both involuntary and voluntary bankruptcy, when the borrower is not able to repay his debt, the lender can compel the borrower to sell his shares or property to compensate for the debt of the borrower.

How to prevent bankruptcy by proper financial planning

Bankruptcy can be prevented by proper financial planning. By the term financial planning one means practicing good money management. Sticking to a realistic budget, spending less, less usage of credit cards, staying within your limit and having an adequate insurance coverage are some of the ways to prevent bankruptcy.